As criticism grows, Gensler's crypto strategy seems distorted

Gary Gensler, head of the Securities and Exchange Commission (SEC), has frequently been dubbed as the "bad cop" of the digital asset sector since assuming office. Gensler has so far adopted an exceptionally tough stance against the cryptocurrency market over the past 18 months, levying significant penalties and implementing strict rules to force players in the sector to adhere to laws.

Gensler has taken a tough posture on cryptocurrency regulation, but he has mostly been quiet about a number of crucial concerns that advocates for digital assets have been raising for a while. For instance, while repeatedly asserting that the majority of cryptocurrencies on the market today may be classed as securities, the SEC has yet to specify which cryptocurrencies can be deemed securities.

Cryptocurrency 

Gensler has punished a number of cryptocurrency startups and promoters for securities breaches, with corporations like BlockFi having to pay up to $100 million in fines for registration errors since April 2021.

Similar to this, the SEC asserted that a total of seven crypto assets being sold by the trading platform were unregistered securities in July when it launched an insider trading complaint against a former Coinbase employee. Additionally, the government is apparently examining the different procedures used by Coinbase to select which cryptocurrencies to offer its customers, according to public documents.

Gensler has also mentioned in the past that there are currently several rules in place that provide sufficient clarity with regard to the regulation of the cryptocurrency industry. In a recent interview with Bloomberg, said that intermediaries like crypto trading and lending platforms need to comply with the SEC's compliance requirements in order for cryptocurrency investors to receive the safeguards they deserve:

“Nothing about the crypto markets is incompatible with the securities laws. Investors have benefitted from nearly 90 years of well-crafted protections that provide investors the disclosure they need and that guard against misconduct like misappropriation of customer assets, fraud, manipulation, front-running, wash sales, and other conflicts of interest that harm investors and market integrity.”

Lawmakers Dissatisfied

Numerous well-known lawmakers, including U.S. Representative Tom Emmer, have questioned the overall effectiveness of crypto regulations in the United States in the wake of a string of collapses, including those of FTX, Celsius, Vauld, Voyager, and Terra in the past six or so months. Emmer recently voiced his concern over Gensler's crypto oversight strategy.

Emmer has made a lot of noise about the SEC's "indiscriminate and inconsistent approach" to the digital asset sector since the beginning of the year. The congressman noted that earlier in March, he had been approached by representatives of various crypto and blockchain firms who told him that Gensler's elaborate reporting requests were not only extremely burdensome and unnecessary but are also having a direct impact on the innovation coming from this quickly evolving space.

It's also important to note that Emmer recently requested that the SEC adhere to the requirements set out in the Administrative Reduction Act of 1980, legislation designed to lessen the overall paperwork load placed on individuals and private companies by the federal government. “Congress shouldn’t have to learn the details about the SEC’s oversight agenda through planted stories in progressive publications,” he said.

The SEC registration requirement for all crypto intermediaries, such as exchanges, broker-dealers, clearing agents, and custodians, was also announced by Gensler earlier in September. Numerous people expressed their disapproval of this choice, including notable Republican senator Pat Toomey.

His contention is that the SEC has failed to deliver any regulatory clarity for the cryptocurrency industry and has been "asleep at the wheel,", particularly in light of the fact that well-known projects like Celsius Network and Voyager Digital have decided to continue to crumble like dominoes throughout the summer, preventing hundreds of thousands of customers from accessing their hard-earned money.

Critics continue to attack Gensler

Criticisms of Gensler's ostensibly strong attitude to crypto regulation have significantly increased since he assumed leadership of the SEC. For instance, in the latter part of last year, Coinbase CEO Brian Armstrong disclosed that the SEC had prohibited his company from introducing a new feature that would have allowed customers to earn interest on their cryptocurrency holdings.

In his opinion, Gensler and the SEC failed to make crypto compliance appealing to and accessible to market participants and failed to give clear direction for cryptocurrency firms on issues like registration and compliance.

"It appears that the SEC is concentrating on all the wrong things, and as a result, the crypto sector is struggling with instances like FTX," he continued. Although it is simple to strike a balance between regulation and innovation, I do agree that laws must be put in place right away, or else users and investors would lose faith in the sector.

Przemysaw Kral, CEO of the cryptocurrency exchange Zonda Global, holds a similarly similar viewpoint and thinks that Gensler's approach to crypto regulation poses a lot of issues, especially in light of the current market turbulence. He claimed that the current criticism of Gensler is being strengthened since his conduct had previously been questioned in the months before the FTX crash.

There's little question that his strategy has failed to some extent as a prominent figure in charge of safeguarding US clients against securities fraud. Any regulatory structure that doesn't prioritize client protection in the first place ought to be seen as counterproductive to fostering sector expansion, according to Kral.

What lies ahead for the SEC and cryptocurrency?

Gensler looks to be taking a more controlled approach to the crypto market, which suggests that the next several months might be quite difficult for the sector. First off, it appears like the two-year legal dispute between SEC and Ripple is finally drawing to a close, with a decision anticipated shortly.

Due to the fact that Ripple's native cryptocurrency, XRP, is now among the top 10 digital assets by total capitalization, the case may have significant repercussions for the market as a whole. The SEC and Ripple have been at odds since the regulator claimed in court that the company's management team had generated an astounding $1.3 billion by selling XRP as unregistered securities back in December 2020.

It will thus be interesting to watch how Gensler and the SEC continue to navigate this quickly changing space as we move toward a future powered by decentralized technology, especially in light of the fact that the number of people investing in cryptocurrencies has been increasing at a rapid rate over the past couple of years.

SEC and Cryptocurrency FAQs

How is the SEC handling cryptocurrency?

According to a report on sec.gov.in, Enforcement Division is attempting to revoke American CryptoFed's registration in order to safeguard investors from false information. Martin Zerwitz and Michael Baker of the SEC's Crypto Assets and Cyber Unit conducted the inquiry.

Is Bitcoin backed by the SEC?

The SEC and other US regulators concur that Bitcoin, by far the largest digital asset, is not a security. It was created by an unidentified individual or people using the alias Satoshi Nakamoto, and it is not intended to be used as a means of funding a particular endeavor.

Is the SEC suing Ethereum?

The SEC claims that Ethereum transactions took place in the US because of the concentration of blockchain validation nodes there; however, courts may disagree with this premise. The Securities and Exchange Commission lodged a complaint about digital asset exchanges made on the Ethereum blockchain in the middle of September.

Why is the SEC suing XRP?

The San Francisco-based business, Ripple, its CEO Bradley Garlinghouse, and its co-founder Christian Larsen is charged by the SEC with deceiving investors by failing to register XRP, one of the top 10 biggest crypto coins in the world, as security.

Does the SEC keep track of crypto?

The SEC declared in May that it was virtually tripling the size of its Cyber and Crypto Assets Unit. Since then, the Department of Justice (DOJ), Commodity Futures Trading Commission (CFTC), and SEC have increased their involvement in crypto enforcement.

Who will regulate cryptocurrency?

In the United States, the Securities and Exchange Commission (SEC) is the main authority on securities regulation. The Howey Test, which was created by a Supreme Court ruling that is over a century old in what is known as the Howey Test, is used by the SEC to classify security as an "investment contract."